NZ Agriculture - Deregulation 26 years on Richard Bowman Head of - - PowerPoint PPT Presentation

NZ Agriculture

• Deregulation 26 years on

Richard Bowman – Head of Agribusiness

July 2011

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Background

Source – Stats NZ / BNZ / MAF

Population 4.37 Million GDP $185 Billion ($135B USD) GDP Growth 0.8% (March Quarter 2010) 5yr GDP growth 1.9% (USA 1.9% AU 3.1%) Unemployment 6.00% Inflation 2.00% (CPI) Sovereign Rating AA+ (stable) S&P’s Exchange Rate $1NZD = $0.73USD OCR 2.50% 5 year Swap 5.41% Exports Total $41.4 Billion ($30.2B USD) Agriculture Exports $23.1 Billion ($16.9B USD) Agriculture % Total 56% Total Farmed Area 13 Million ha (32M acres)

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Background

• Farming in NZ developed by British migrants in the late 1800’s, product had a guaranteed market in

Britain.

• By 1950’s and 1960’s NZ had one of the highest living standards in the world.
• In 1967 Government devalued the dollar to promote exports and reduce imports
• In 1974 Britain joined the European Community and NZ lost its unrestricted guaranteed market. NZ

Exporters looked for new markets but prices were much lower due to competition.

• 1977 The Livestock incentive Scheme is set up. This is a government initiative to encourage farmers to

farm more livestock.1978 Land Development Encouragement Loans begin. This scheme aims to encourage further development of land into pastoral use.

• 1978 Government introduced the Supplementary Minimum Prices Scheme a supplement to the already
• perating industry stabilisation schemes
• Internal manufacturing was highly inefficient due to a full employment policy and government intervention

i.e. restrictions on imports. This drove up the cost of inputs into the farming sector

• Government response was to subsidise inputs particularly Finance, fertiliser and transport. In conjunction

with price support schemes for key agricultural outputs. Government borrowed heavily over this period to sustain the system.

• For five of the six years up until 1982 farm costs were increasing at faster rates than consumer prices
• By 1984 when international lenders turned off the credit tap, about 40% of Sheep farmers income was

paid by the Government. While lamb production continued to increase it was costing 65% more to produce a lamb in NZ than the international competition.

Source –Ministry of Agriculture and Forestry, Reform of NZ Agriculture

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Farm Finance

Provision of Rural Credit

41% 11.4% 96.8% 47.2% 3.2%

0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 70.0% 80.0% 90.0% 100.0% 1983 2008 Year Private - Non Bank Private - Bank Government

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Effects of Changes in 1984

• Fertiliser halved to below maintenance levels. After 4-5 years, this started to reduce farm output;
• Non-essential repairs and maintenance and expenditure on new plant and equipment was stopped
• New land development stopped - and some land, which had been recently developed, started to

decline through inadequate follow-up, a lot of this land was un-economic without subsidy

• Farmers laid off labour and did more farm work themselves. Drawings dropped.
• This reduction in expenditure had immediate and severe effects on rural service industries and rural
• communities. For every dollar not spent by a farmer, there were three dollars not spent in rural
• communities. Many people went onto government welfare support.
• About 20% of the total debt owed by the farm sector was written-off (through discounting) and about

5% of farms were sold. The withdrawal of government support to agriculture virtually halved the value of land and livestock over night.

• When government support was first withdrawn, farmers initially acted with disbelief. Then they

became very angry and, in 1986, nearly one-third of the farming population marched in a protest to Parliament.

• Government pledged to continue macro economic reform as the best means to improve

international competitiveness in farming. This was a clear signal to farmers to start helping themselves rather than seeking ongoing government support.

Source –Ministry of Agriculture and Forestry, Reform of NZ Agriculture

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Changes in Farming Mix

Source –Ministry of Agriculture and Forestry, SONZAF

10000000 20000000 30000000 40000000 50000000 60000000 70000000 80000000 1950 1952 1954 1956 1958 1960 1962 1964 1966 1968 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 Stock units

Changes in Stocking Trends over time (1950 - 2008)

Sheep SU Dairy SU Beef SU Deer SU

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Exports NZD 1991-2009 (Nominal)

Source –Ministry of Agriculture and Forestry, SONZAF

2,000 4,000 6,000 8,000 10,000 12,000 NZD millions

Farming Exports (NZD)

Beef & Veal Lamb & Mutton Total Dairy Products Wool Forest Products Horticultural ex Wine Wine

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Conclusions

Conclusions

• New Zealand agriculture has found that there is "life after subsidies". In fact, few farmers now wish

to return to the days of government support.

• New Zealand now has an extremely internationally competitive agricultural sector. Quality is very
• important. New Zealand is very concerned to maintain its clean, green image.
• Inflation proved to be a major destroyer of farm profitability. High inflation reduced international

competitiveness, thereby reducing returns, whilst increasing farming costs. New Zealand's inflation rate over the last few years has been considerably lower than our trading partners, and this has further enhanced New Zealand's competitive advantage.

• Companies and individuals now have full market led responsibility for production decisions. They

reap the rewards and take the risks of their decisions. Business management skills have improved significantly in New Zealand in the market led environment.

• There is now a much reduced risk of making wrong decisions. Rather than the government picking

winners, and supporting particular ventures, decisions are now made by a large number of

• individuals. The consequences of any one decision-maker getting it wrong is now much less.
• For New Zealand, additional benefits will come from freer international trade in agricultural
• products. It remains exasperating to New Zealand farmers that much of the international

competition New Zealand faces is from subsidised production.

Source –Ministry of Agriculture and Forestry, Reform of NZ Agriculture